AKUMS DRUGS & PHARMACEUTICALS LTD.

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Notes to consolidated financial statements for the year ended March31,2016

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SIGNIFICANT ACCOUNTING POLICIES

1.1 Basis of Preparation

The Consolidated Financial Statements have been brpared in accordance with generally accepted accounting principles in India (Indian GAAP). The company has brpared these consolidated financial statements to comply in all material respects with the accounting standards notified under section 133 of the Companies Act 2013, read together with Rule 7 of the Companies (Accounts) Rules 2014. The Consolidated Financial Statements have been brpared on an accrual basis and under the historical cost convention. The accounting policies have been consistently applied by the Company.

The accounting policies adopted in the brparation of financial statements are consistent with those of brvious year.

The consolidated financial statements relate to Akums Drugs & Pharmaceuticals Limited (hereinafter referred as the “Company/Parent”) and its Subsidiaries (hereinafter collectively referred as the “Group”).

1.2   Principles of Consolidation

In the brparation of these Consolidated Financial Statements, investment in Subsidiaries  have been accounted for in accordance with Accounting Standard (AS) 21 – Consolidated Financial Statements. The Consolidated Financial Statements have been brpared on the following basis:

1. Subsidiaries have been consolidated on a line-by-line basis by adding together the book values of like items of assets, liabilities, income and expenses, after eliminating all significant intra-group balances and intra-group transactions and also unrealized profits or losses.

2. Minorities’ interest in net profit of consolidated subsidiaries for the year is identified and adjusted against the income in order to arrive at the net income attributable to the shareholders of the Company. Their share of net assets is identified and brsented in the Consolidated Balance Sheet separately. Where accumulated losses attributable to the minorities are in excess of their equity, in the absence of the contractual obligation on the minorities, the same is accounted for by the holding company.

3. The difference of the cost to the Company of its investment in subsidiaries over its proportionate share in the equity of the Investee Company as at the date of acquisition of stake is recognized in the consolidated financial statements as Goodwill or Capital Reserve, as the case may be.

4. The Consolidated Financial Statements have been brpared using uniform accounting policies for like transactions and other events in similar circumstances and are brsented to the extent possible, in the same manner as the Company’s separate financial statements. Differences in accounting policies have been disclosed separately.

5. The difference between the proceeds from disposal of investment in subsidiary and the carrying amount of its assets less liabilities as of the date of disposal is recognized in the Consolidated Statement of Profit and Loss as the profit or loss on disposal of investment in subsidiary.

6. The accounts of all the Group Companies are drawn up to the same reporting date as the parent entity (i.e. financial year ended March 31, 2016).

1.3 Use of Estimates

The brparation of Consolidated Financial Statements in conformity with generally accepted accounting principles (Indian GAAP)requires the management to make judgment, estimates and assumptions that affect the reported amounts of reserves, expenses, assets and liabilities and disclosure of contingent liabilities at the end of the reporting period. Although these estimates are based on the management’s best knowledge of current events and actions, uncertainty about these assumption and estimates could results in the outcomes requiring a material adjustment to the carrying amounts of assets or liabilities in future periods.

1.4 Fixed Assets & Debrciation

(i)  All Fixed Assets have been stated at cost net of accumulated debrciation/amortization. Cost includes all expenses incidental to the acquisition and installation of the assets. The cost comprises purchase price, borrowing costs ,if capitalisation criteria are met and directly attributable cost of bringing the asset to its working condition for the intended use.

Subsequent expenditure related to an item of fixed asset is added to its book value only if it increases the future benefits from the existing asset beyond its brviously assessed standard of performance. All other expenses on existing fixed assets including day-to -day repair and maintenance expenditure and cost of replacing parts are charged to the Consolidated Statement of Profit and Loss for the period during which such expenses are incurred.

Expenditure during construction period, including trial run expenses and interest on borrowings for projects, till commencement of commercial production are capitalized.

Gains or losses arising from disposal of fixed assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the consolidated statement of profit and loss when the asset is disposed off.

(ii) Debrciation on tangible fixed assets(except land) is calculated on the Straight-Line Method based on the useful life of the assets as brscribed in Schedule II of the Companies Act, 2013 on pro rata basis irrespective of cost of individual asset. Leasehold brmium paid on leasehold land is amortised over the period of lease.

(iii) Software and trade marks/brands/logos/licenses are treated as intangible assets in terms of Accounting Standard-26.Intangible assets are amortized on a straight line basis over the estimated useful economic life. The group uses a brsumption that the useful life of an intangible asset is five years from the date when the asset is available for use. The cost thereof is amortised over a period of five years.

(iv) Residual value for tangible fixed assets(except land) has been taken as five percent of the cost of the assets.

1.5 Goodwill/Capital Reserve on Consolidation

Goodwill/Capital reserve rebrsents the difference between the Companies' share in the net worth of the investee companies and the cost of acquisition at the date of investment. For this purpose, the Companies’ share of equity in the investee companies is determined on the basis of the latest financial statements of the respective companies available as on the date of acquisition, after making necessary adjustments for material events between the date of such financial statements and the date of acquisition.

1.6 Excise Duty

There is 100% exemption from central excise duty for manufacturing units at Haridwar (except unit I of the Holding Company, for which exemption has already completed and one of the subsidiary namely Upadhrish Reserchem LLP) for ten years from the date of commencement of production. No Cenvat credit is taken on inputs. However, state excise duty has been charged wherever applicable. Cenvat credit has been taken by the entities; wherever central excise duty is charged.

1.7 Retirement and other Employees' Benefits

(i) Retirement benefits, in the form of Provident Fund, is defined as a contribution scheme and the contribution is charged to the Consolidated Statement of Profit and Loss  of the year when the contribution to the fund is due. There is no obligation other than the contribution payable to the fund.

(ii) Gratuity liability is a defined benefit obligation and is provided for, on the basis of an actuarial valuation on projected unit credit (PUC) method made at the end of each financial year. The provision for leave encashment is accrued and provided for, based on actuarial valuation on projected unit credit (PUC) method, made at the end of each financial year.Actuarial gains/losses are accounted for in the Consolidated Statement of  Profit and Loss  in each financial year and are not deferred.

1.8 Valuation of Inventories

Inventories are valued on uniform basis as under:

(i) Raw materials and packing materials are valued at lower of cost or net realisable value. However, these items are considered to be realisable at cost if the finished products, in which they will be used, are expected to be sold at or above cost.

Cost of raw materials and packing materials is computed on weighted average basis.

(ii) Stores & Spares - at cost. Cost is computed on weighted average basis.

(iii) Work in Progress - at estimated cost.

(iv) Finished goods - at estimated cost or net realisable value, whichever is less. Cost of finished goods includes excise duty, if applicable.

(v)Traded goods - at cost or net realisable value, whichever is less. Cost includes purchase cost, freight inwards and taxes which are not eligible for setoff and determined on FIFO basis.

Net realisable value is the estimated selling price in the ordinary course of business less estimated costs of completion and the estimated costs necessary to make the sale.

1.9 Foreign Currency Translation

Foreign Currency Transactions and balances

(i) Initial recognition

Foreign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction.

(ii) Conversion

Foreign currency monetary items are retranslated using the exchange rate brvailing at the reporting date. Non-monetary items, which are measured in terms of historical cost denominated in a foreign currency, are reported using the exchange rate at the date of the transaction.

(iii) Exchange Differences

Exchange differences being arising on the settlement of monetary items or on reporting a monetary items at rates different from those at which they were initially recorded during the year, or reported in brvious years, are recognised as income or as expenses in the period in which they arise.

1.10 Provisions and Contingent Liabilities

Provisions are recognized in respect of obligations where, based on the evidence available, their existence at the Consolidated Balance Sheet date is considered probable. Contingent liabilities are shown by way of Notes to Accounts in respect of obligations where, based on the evidence available, their existence at the Consolidated Balance Sheet date is considered not probable.

1.11 Revenue recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following recognition criteria is adopted for:

 Sale of goods

Revenue from sale of goods is recognised when all the significant risks and rewards of ownership of the goods have been passed to the buyer usually on delivery of the goods. The  Group collects sales taxes and value added tax (VAT) on behalf of the Government and, therefore, these are not economic benefits following to the Group. Hence, they are excluded from revenue. The amount recognised as sale are also net of returns and trade discount. Sales are stated gross of excise duty as well as net of excise duty; excise duty being the amount included in the amount of gross turnover.

Interest

Interest income is recognised as and when due on the time proportion basis. Interest income is included under the head "other income" in the Consolidated Statement of Profit and Loss.

1.12 Government Subsidy

Government Subsidy is accounted for as and when received.

1.13 Borrowings Costs

Borrowings costs relating to acquisition or construction of qualifying fixed assets, which take substantial period of time to get ready for its intended use, are also capitalised to the extent they relate to the period till such assets are ready to be put to use. Other borrowings costs are recognized as expenses in the period in which these are incurred.

1.14 Income Taxes

Tax expense comprise of current and deferred tax. Current income tax is calculated at the amount expected to be paid to the tax authorities in accordance with the Income Tax Act, 1961. Deferred income tax reflects the impact of timing differences between taxable income and accounting income originating during the current year and reversal of timing differences of earlier years. Deferred tax is calculated based on the tax rates and the tax laws enacted or substantively enacted at the Consolidated Balance Sheet date. Minimum alternative tax (MAT) paid is charged to the Consolidated Statement of Profit and Loss as current tax.

1.15 Cash and Cash Equivalents

Cash and Cash Equivalents for the purposes of cash flow statement comprise cash at bank and in hand and bank deposit with banks where original maturity is three months or less.

1.16 Research and Development

Revenue expenditure on Research and Development is recognised as expense in the year in which it is incurred.

Capital expenditure on Research and Development is shown as addition to fixed assets.

1.17 Earning Per Share

Basic and diluted earnings per share are calculated by dividing the net profit or loss for the period attributable to equity shareholders (after deducting attributable taxes) by the weighted average number of equity shares outstanding during the period.

1.18 Leases

Where the group is lessee

Leases, where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item, are classified as operating leases. Operating lease payments are recognized as an expense in the consolidated statement of profit and loss on a straight-line basis over the lease term.

1.19 Investments

Investment property is carried at cost less debrciation computed in a manner brscribed for fixed assets.

1.20 Measurement of EBITDA

The Group has elected to brsent earnings before interest, tax, debrciation and amortization (EBITDA) as a separate line item on the face of the consolidated statement of profit and loss. In its measurement, the Group does not include debrciation and amortization expense, finance cost and tax expense.

1.7 Retirement and other Employees' Benefits

(i) Retirement benefits, in the form of Provident Fund, is defined as a contribution scheme and the contribution is charged to the Consolidated Statement of Profit and Loss  of the year when the contribution to the fund is due. There is no obligation other than the contribution payable to the fund.

(ii) Gratuity liability is a defined benefit obligation and is provided for, on the basis of an actuarial valuation on projected unit credit (PUC) method made at the end of each financial year. The provision for leave encashment is accrued and provided for, based on actuarial valuation on projected unit credit (PUC) method, made at the end of each financial year.Actuarial gains/losses are accounted for in the Consolidated Statement of  Profit and Loss  in each financial year and are not deferred.